Boston, MA - United States Attorney Donald K. Stern today announced that Sallie Mae Servicing Corporation of Reston, Virginia ("Sallie Mae") has agreed to pay S3.4 million to the United States to settle civil False Claims Act allegations. The settlement stems from Sallie Mae's submission of claims for federal payments on hundreds of federally insured student loans, before Sallie Mae had taken the legally required steps to collect the loans.

Sallie Mae is the nation's largest services of federally insured student loans under the Federal Family Education Loan Program. Its activities include collecting loan payments and pursuing delinquent borrowers. Federal law requires that loan services like Sallie Mae make a certain number of "diligent efforts" to contact the borrower by telephone and mail prior to making a claim on the federal guaranty, and that an accurate collection history reflecting these diligent efforts be submitted with each claim to collect on the guaranty.

The United States alleges that, for the period July, 1994 through November. 1995, a Sallie Mae employee at its Loan Servicing Center in Waltham, Massachusetts made false call records on collection histories for thousands of delinquent loans he was responsible for pursuing. These records consisted of false reports that the employee had communicated with or attempted to communicate with delinquent borrowers. Sallie Mae then submitted claims for guaranty payments to various guaranty agencies on hundreds of loans on which its employee had made false call records. Alter the guaranty agencies reimbursed Sallie Man for the delinquent loans, the guaranty agencies then obtained reimbursement from the Department of Education.

The Settlement Agreement requires Sallie Mae to pay $3.4 million to the United States in multiple damages and penalties for the claims for federal payments which Sallie Mae has already submitted on loans affected by its employee's misconduct. In addition, it prohibits Sallie Mae from making any claims in the future on federal guarantees on $9.5 million in additional affected loans.

When it learned of the misconduct, Sallie Mae promptly terminated the employee at issue, reported the misconduct to the Department of Education, and has cooperated in this investigation. Sallie Mae has also taken corrective steps to ensure that similar misconduct cannot occur in the future.

U.S. Attorney Stern stated; "Misconduct like this threatens the integrity of the federally insured student loan program. The Department of Education was, in effect, making guarantee payments to Sallie Mae even though Sallie Mae had failed to take the legally required steps to collect from the borrower. We commend Sallie Mae for reporting this serious misconduct to federal authorities, and for accepting responsibility for the losses suffered by the Department of Education."

The case was investigated by agents from the Office of Inspector General of the Department of Education, and handled by First Assistant U.S. Attorney David S. Mackey and Assistant U.S. Attorney Susan M. Poswistilo.